Wall Street reform: Scrap bank tax, end TARP

By Jennifer Liberto, senior writerJune 30, 2010: 11:10 AM ET

WASHINGTON (CNNMoney.com) -- Lawmakers came up with an alternative plan to pay for Wall Street reform, attempting to save the sweeping measure from falling short of the votes necessary to pass in the Senate.

After key moderate Republicans who had supported earlier versions of reforms threatened opposition, Democrats scrapped an effort to tax big banks and hedge funds to the tune of $19 billion.

Instead, they would come up with $11 billion by ending the Troubled Asset Relief Program (TARP) immediately upon final passage of the bill.

Currently, the repayments and untapped TARP dollars are supposed to pay down federal deficits.

The lawmakers would also hike the premiums that the biggest banks pay for taxpayer-backed federal insurance on their commercial deposits, which would offset roughly $5.7 billion of the bill's costs.

One of those Senate Republicans who was balking, Sen. Scott Brown, R-Mass., said Wednesday he's now considering whether he'll vote for the bill.

"I appreciate the conference committee revisiting the Wall Street reform bill and removing the $19 billion bank tax," Brown said in a statement. "Over the July recess, I will continue to review this important bill."

On Tuesday, Brown announced in a letter that he would oppose the bill because of the new tax on banks, which was tacked on to the final Wall Street reform bill late last week. Two other Republicans who had originally supported the bill were not sure of their vote because of the same issue.

House and Senate negotiators voted on strict party lines on the change in paying for the bill that was originally passed after a 20-hour negotiating session last week.

"To get the enough votes to pass this bill, we have to do this," said Rep. Barney Frank, D-Mass., who added he favored the original idea of taxing big banks and hedge funds.

Republicans didn't like the compromise. "This ranks right up there at the top of the list for pure deception for treating the American taxpayer in an inappropriate way," said Sen. Judd Gregg, R-N.H.

Democrats have been hoping to get final passage of the bill this week, ahead of the July 4 recess.

But the last-minute changes to the bill, coupled with a planned memorial for Sen. Robert Byrd, means they could run out of time.

The full House is expected to take up the bill Wednesday.

Democrats need 60 votes in the Senate to overcome any filibuster of the measure. With Byrd's death and the stated opposition of Sen. Russell Feingold, D-Wis., who believes the bill isn't strong enough, they are down to 57 supportive Democrats in the Senate.

Democrats need three Republicans to overcome the filibuster.

The Wall Street reform measure, the result of more than 18 months of negotiation and debate, aims to strengthen consumer protection, shine a light on complex financial products and establish a new process for shutting down giant financial firms in trouble.

While leaving an economic briefing, President Obama said Tuesday that he believes that the Senate will pass the reforms.

"I'm confident that given the package that has been put together, that senators, hopefully on both sides of the aisle, recognize it's time we put in place rules that prevent taxpayer bailouts and make sure that we don't have a financial crisis that can tank the economy," Obama said.

A spokesman for Sen. Maria Cantwell, D-Wash., who also voted against the bill, said she was still reviewing it.

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